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Manufacturing a new way of doing things

As manufacturing jobs return, where will the new business hubs take hold?

The US election has renewed focus on free trade and on factory jobs going abroad. Looking to cut costs, it’s said, business leaders are offshoring—setting up factories in foreign countries that have cheaper labour.

Reading beyond the headlines, it’s clear that the reality is more complex. The US did drop some 5.7m manufacturing jobs from 1998 to 2013—but, in the last few years, the sector has seen an uptick of 800,000 jobs. Now a confluence of trends could spark more growth: The auto industry has rebounded, US plants are becoming more cost-competitive and policymakers are taking a hard look at strategies to accelerate manufacturing job gains and investment.

Plus, technology is reshaping the manufacturing sector. The increased use of sensors is enabling more efficient factories that can squeeze out more profits while using fewer resources. Smart, more agile robots that can learn on the job are taking on more of the grunt work, freeing human employees to fill more high-skilled jobs. Additive manufacturing, aka 3D printing, has also introduced a new, cheaper method of creating parts and prototypes.

If a manufacturing renaissance does take hold, will the hubs and jobs remain concentrated in the upper Midwest? What factors are most important to manufacturing executives who are looking to expand or relocate? Here’s a look at how Indiana, one of the most manufacturing-driven states in the country, may fare based on a recent national study that examined the dynamics that executives weigh most heavily when considering a move.

Financial incentives

With 30% of its GDP coming from manufacturing—a figure higher than any other state in the US—Indiana’s economy has much to gain, or lose, should manufacturing companies migrate to other parts of the country. To ensure that it remained attractive to manufactures, Indiana officials made major regulatory and tax structure changes over the last ten years.

Indiana’s low corporate income tax of 6.5% is scheduled to drop to 4.9% by 2021. The state imposes no inventory tax and has constitutional caps on property tax. According to a 2017 State Business Climate Index, Indiana now ranks as the eighth best state in the nation.

A recent study, “American Business Expansion to 2020”, conducted by the Economist Intelligence Unit (EIU) and sponsored by the Indiana Economic Development Corporation, looked at the variables that companies consider when making relocation or expansion decisions. One of the key factors influencing such decisions is the availability of financial incentives, cited by 57% of manufacturing executives.

Vince Flaska, manager at Hoist Liftruck, which makes forklifts for Toyota and others, says financial incentives helped persuade him to move the company’s manufacturing operations from Chicago to Indiana last year. “The property taxes are much lower and there’s much less red tape,” he says.

A favourable tax climate was the impetus behind AM Manufacturing’s move to Indiana as well. When the company needed more space, company president Mark VanDrunen relocated the operation just over the border, five minutes away to a 56,800-square-foot facility in Munster, Indiana, where the dough-processing machine maker found breathing room and lower tax rates than it had in neighbouring Munster, Illinois.

The list of manufacturing companies landing or expanding in Indiana includes General Motors. In April, GM opened the $1.2bn expansion of its Fort Wayne assembly plant. Steelmaker T&B Tube and shelving firm Edsal Manufacturing recently relocated to Gary, Indiana; when Cummins, a nearly 100-year-old maker of engines and power systems, conducted a global relocation study, executives decided to remain in Columbus, Indiana.

Costs and efficiency were deciding factors in the Cummins’s study, but the company’s culture, which is rooted in a Midwest mindset was also a consideration. “There’s a strong work ethic,” says James Gruwell, EVP of supply chain strategy at Cummins. “Most of us aren’t too many generations away from a farming household.”

Modern factories and lower costs

Old world factories with rows of workers spaced along an assembly line are phasing out as advances in robotics and 3D printing, the use of Internet-connected sensors and artificial intelligence are increasingly found in modern plants.

For instance, Rethink Robotics’s Sawyer, a new high-performance robot designed for machine- tending on the factory floor, can learn a new task in minutes. Advances in 3D printing allow prototypes or spare parts to be produced in a few hours without having to create new moulds, thus saving time and money. Modern factories can also be monitored remotely via the Internet.

These advances have helped reduce costs, which, according to the EIU survey, was manufacturing executives’ third most cited driver (52%) in relocation and expansion decision-making.

GE, one of the leaders in the idea of “brilliant manufacturing” that uses the latest technologies, opened a GE Aviation plant in Lafayette, Indiana, last year. “The location is outstanding—with easy access to major airports and our engine test facility in Peebles, Ohio,” says Rick Kennedy, media relations manager at GE Aviation. “But the team effort in Indiana is exceptional—from employee training to financial incentives to access to community colleges and Purdue University.”

A skilled workforce

A business-friendly environment, proximity and modern plants may continue to attract manufacturing to Indiana, but, to sustain growth, companies need a skilled labour pool.

This, too, played in Indiana’s favour, says Hoist Liftruck’s Mr Flaska. While in Illinois, he says he was lucky to get one or two qualified welders a month to respond to a help wanted sign. “Here we get 20 people coming in for a variety of jobs,” he says. “And you have people coming in with wonderful skills.” Mr Flaska credits the Indiana public school system, which teaches students trades like welding in high school.

The EIU study found that “access to skilled labour” was especially important across industries and the top priority (64%) driving relocation decisions for manufacturing executives. The state is home to 90 trade schools and has a number of notable universities, including Purdue and Notre Dame.

Purdue in particular is helping the state keep pace with changes in manufacturing by launching the Indiana Manufacturing Institute (IMI), which is exploring advanced composites—materials made from carbon fibres— a lightweight alternative to steel that can build better products. Mr Kennedy notes that GE has a strong relationship with Purdue and that the company employs hundreds of Purdue graduates.

Purdue launched the Indiana Manufacturing Institute in 2015 as part of a $50m project in the state. “These industries require a higher level of learning,” says R. Byron Pipes, director of the Composites Manufacturing Simulation Center at the IMI. “That’s why it was important to centre [the Institute] at an educational institution, because we can produce the people at the same time we produce the technology. We can put them out in the world together.”

If globalisation does hit a wall, another theme running in the election headlines, then a manufacturing renaissance may not be far off—and Indiana may be positioned for the “reshoring” to ramp up.